15 May 2020 12:42
BT shares surged 8% today on hopes it could sell a major stake in its £20 billion Openreach engineering arm although an internal memo to staff firmly denied the reports. The memo seen by the Evening Standard is from Openreach chief Clive Selley to his employees telling them the story was untrue and BT would continue as Openreach's owner. In it, Selley writes: "Many of you will have seen the reports overnight about BT being in talks to sell a stake in Openreach. Reports last night from the Financial Times reported that BT was in talks with infrastructure funds to sell a multibillion pound stake in the division, whose vans are a familiar sight on London's streets. The idea was that BT could invest the money in the £12 billion rollout of high speed fibre to the premises broadband.
BT has set an ambition to cover 20 million homes and businesses by the mid-2020s. However, analysts were sceptical of the story as such a plan would probably have to involve dividing Openreach out completely from BT, and divvying out its enormous pension deficit. Liabilities of the pension stand at around £63 billion and the deficit is up to £7 billion by some calculations. The fund includes some 300,000 workers in three sections and is a legacy of its long history. Despite Selley's memo to staff, put out to Openreach employees on its internal social media platform, BT did not issue a formal denial of the story to the stock market.
Macquarie denied it was involved. BT chief executive Philip Jansen bought £2 million of shares in BT yesterday, which would be illegal if he had prior knowledge of such talks. Analysts said that made the story seem unlikely, although Bank of America researchers said recent regulatory changes in the UK made future profitability of fibre clearer for potential investors. The chief executive of Openreach has denied reports that BT could sell a stake in its network division. Clive Selly, who runs the fixed line and broadband network operator, told employees in a memo that BT would remain its owner, according to the Evening Standard. "Many of you will have seen the reports overnight about BT being in talks to sell a stake in Openreach. I spoke to Philip Jansen last night after the story broke in the newspapers. He is very clear – the story is inaccurate. Openreach is staying in the BT group." BT shares jumped as much as 8pc in morning trading following the Financial Times report that the telecoms giant had held talks with the Australian bank Macquarie an an unnamed sovereign wealth fund. BT is reportedly in talks to sell a major stake in Openreach that would fund the company's rollout of full fibre broadband. Openreach was formed in 2005 when BT split its infrastructure division from its retail business and in 2017 became a legally separate company following a major market review by Ofcom. Competitors had argued the ownership model meant Openreach made decisions that favoured its parent and that it had little incentive to invest in full fibre infrastructure, preferring instead to 'sweat' its copper assets. Openreach investment By making Openreach independent with its own budget, strategy and board, BT was able to retain the division and satisfy Ofcom's demand for greater transparency. In the years since, political and market forces have made full fibre a priority for BT, which has pledged to reach 4.5 million properties by March 2021, 10 million by the mid-2020s and 20 million by the end of the decade. The latter two targets are dependent on favourable regulatory environments and government support. However the FT says there is concern that BT lacks the financial capabilities to fund this rollout. The firm's share price has fallen dramatically over the past few years and last week it confirmed it was suspending its dividend in order to focus on infrastructure rollout. While investors would generally accept such a suspension if it meant long-term gains, BT has reportedly held talks with private investors, including Macquarie Capital, in a deal that would value Openreach at £20 billion. This would unlock the value of the Openreach division for investors, provide a boon to BT shares, and help fund investment in infrastructure that would generate long-term gains. If a deal were to materialise, it would mark a significant shift in strategy for BT. Prior to the 2015 Ofcom review, BT's rivals called for Openreach to be spun off entirely so third parties could invest. And since Openreach's independence there have been no pushes for co-investment between BT and other providers such as Sky, TalkTalk and Vodafone. The UK has seen a number of major acquisitions and investments over the past few years. CityFibre was acquired by private equity firms for £538 million in 2018, while KKR bought a majority stake in Hyperoptic last year. Macquarie itself, through its Macquarie Infrastructure and Real Assets (MIRA) fund, recently won a £627 million bidding war for KCOM. MIRA commands tens of billions worth of assets and is a major investor in telco infrastructure. It has invested in Arqiva in the UK and owns TDC – the largest telco in Demark. BT and Macquarie have been contacted for comment. Here are the best BT broadband deals for May 2020